The bonuses aren’t the totality of it, but they are adding insult to injury. Most people don’t understand credit default swaps. They do understand “the people who fucked our economy got big bonuses,” so that’s what they’re fixating on, and yes, that’s an adequate reason to be angry. It’s just the latest, easiest to understand, and most public example of why AIG execs are bastards. The rest of it is worthy of further outrage, of course, but please, why tell people they can’t or shouldn’t be angry about this?
I don’t think I’ve ever seen fear as a reason to be angry about this situation. Fear of what?
Because, to me, it’s the equivalent of being angry at someone who smokes 4 packs a day for having stained teeth…while ignoring the lung cancer thingy. You are, of course, free to be angry at them and whoever else you like for whatever reasons you like.
I think I’m about done here. Didn’t meant to interrupt…carry on folks.
-XT
Well, I lied…one last thing. Are you serious here? People are lashing out directly because they are afraid of the entire financial situation (losing their jobs, losing their house, having the economy completely collapse, a new Great Depression, etc etc), and they have focused all of that rage on AIG (and the other corporation that supposedly caused all of this current mess). That is EXACTLY why they are so angry right now…well, that and the fact that they have been manipulated to for years now.
-XT
Now I’m done…carry on.
What is with all the extremely crappy and ill-formed analogies in this thread? It’s like guys who fucked the economy getting big cash bonuses for doing it. We’re angry at them for fucking the economy, but we’re also angry that they got bonuses too. Why is that hard to understand or worthy of censure from you?
My analogy would be after the 21st amendment when prohibition was repealed. Then we put the mafia in charge of the liquor trade. After all they were the only ones with expertise in the field. Nobody else was involved. We should have faced it, that they were the only ones that could handle the business. The fact that they were crooks could never negate their knowledge and training.
ETA: nothing… carry on
AIG and Treasury say the contracts are legally binding, but no one else has seen them. I am not sure why Congress and the public should accept AIG and Treasury’s word on this.
The retention bonuses were announced after AIG led Congress and the public to believe it wouldn’t pay bonuses, so it appears the retention bonuses were a way to renege on a public commitment. This is the same firm that went to a luxury spa shortly after the bailout and said these types of perks were necessary to keep good people.
xtisme–I resent being told that I’m angry about this due to ignorance and the media/Obama administration fomenting my ire. Fuck that. Yes, I am angry at more than AIG, but this thread is about AIG. We could talk a great deal about the wankers at Lehman’s or Bear Stearn’s or fill in the blank as well.
I’m angry because the people who claim to be the experts, who claim to have special skills and knowledge and therefore deserve their high salaries etc are nothing but a bunch of crooks in bespoke suits and handmade Italian shoes, living high. It may well end up being legal, but morally and ethically it’s wrong, wrong, wrong to get these “bonuses”. It’s unconscionable. It’s disgusting. The whole greed is good/unfettered markets is disgusting. I believe in profit; I believe in capitalism, but not like this. It should never be: “I got mine; fuck you.” Saying the “bonuses” went throughout the company (to the smaller fry) makes no difference to me. The company failed due to gross incompetence and pure greed–no one deserves a bonus in that division (the part that did the CDS that is).
As Jon Stewart said, it’s not a fucking game. I no more believe the Obama admin is churning this than I believe pigs can fly. Frankly, that argument is worthy of Beck or Limbaugh. It’s ridiculous. The media are reporting this because it is huge news and the impact and future ramifications of this story are monumental.
What strikes me as bitterly ironic is so many Reps coming out and baying for blood. THIS is the system they idolize and deify. THIS should be business as usual to conservatives. The fact that even they are dismayed is both telling and refreshing.
There comes a point when just because something is legal doesn’t make it right overrides anyone’s rights. You can say that way is madness and chaos, and usually I’d agree with you. Not this time.
Just wanted to make a couple general comments. Firstly, I’m not upset about the bonuses. Some bonehead probably set a compensation structure based on how many sales people made or how many sales people under them made. Those people busted their butts, made the sales, or enabled their people to make the sales of these financial products. The system is probably set up on how they performed in selling or administrating the products, it’s not based on if the products create long-term value or not. As such they performed their jobs and deserve their compensation. Most executive positions have nominal salaries and huge bonus structures to help ensure they work their asses off. Bill Gates, just a couple years before he stopped being the active CEO of Microsoft, was paying himself about $650K in salary. Doing the math, you’ll quickly see that he’d have to live a few thousand lifetimes as Microsoft CEO in order to amass his billions if his salary was his only compensation. That’s just business as usual. I’ve been saying it needs overhaul for years, but you do that before people sign contracts for their labor, not after.
I think in times of crisis, like this one, people tend to focus on little stuff, instead of the bigger picture because the little stuff is more easily comprehensible. That doesn’t make it right. This kind of stuff is the reason the saying “penny wise and pound foolish” needs to be kept in mind. This is less than 1% of the money given to AIG. Most of that cash is locked up in a vault as collateral in case the CDS need to be paid out. The more we panic and pull our money out of the markets and companies have to downsize, cutting jobs, leading to foreclosures, the more CDSs will be cashed in and the taxpayer’s money will be flat out gone then, not just locked up. It’s a vicious cycle. If we can break the cycle and keep the CDS from defaulting, then we keep 99% of our money and can sell the CDSs again at some point to someone who is willing to collateralize them properly. Voila, we get our money back. I think we need to be working to save the bulk of our money, not chasing after the penny which fell on the ground at the car wash while our wallet(which we stupidly left on top of the car) is about to be put through the wringer.
That having been said, someone needs to lose their jobs, and not just a couple people at the top who can jump with their golden parachutes. The people who sold these securities, they can go. We’re not going to be selling any more of these types of securities, ever. The people who wrote these securities, they should go work for the SEC under the idea that they know what creative accounting looks like and we may as well have them helping prevent others from following in their footsteps as doing anything else.
I’m betting we’ll find there are internal documents, much like there were at big tobacco companies, which say “if AIG loses it’s AAA credit rating these instruments will become huge sucking pits for money” and some executive signed on the bottom line of that document saying “I’ll take that risk, give me money now.” That executive should go to jail, and there were probably a few dozen like them in AIG and a handful in dozens of the major banks. They can all share cells as far as I’m concerned.
Aside from that, I’m not sure we can fix financial fuckups with legislative fuckups(written by legislating fuckups).
Now, to a direct question. xtisme, do you believe people who bought houses with Adjustible Rate Mortages(ARMs) should be bailed out? When the trend in interest rates turned against them, they’re expected to pay higher costs for their debt servicing. Just like AIG, when they lost their high credit rating, has to post more collateral for the CDSs they wrote(and they knew they would, they wrote the clauses which make them post more if their credit rating slipped). If the world had continued as it was, low interest rates, high credit ratings, neither of them would have problems.
If you believe we should bail out AIG and not homeowners with ARMs, could you elaborate on why? If we bail out one because they made a stupid, naive assumption, why not the other?
Enjoy,
Steven
Mtgman–very nice, clear post. Thanks. I don’t disagree with most of what you said. Like you, I think we need some major changes and some stringent regs put in place for future. I think Sweden’s approach looks good. I didn’t before, but that was before I became convinced that AIG type people (financial industry people) cannot be trusted to self-regulate or even have some morals. Broad brush, I know, but I’m angry at them all. There’s probably a small bank in Iowa somewhere that I’m not mad at…
Are the bonuses a drop in the bucket? Yes, but they’re also the straw that broke this camel’s back (to mix my metaphors).
There’s also the Broken Window theory, that when you clean up graffiti and go after turnstile jumpers, the murder rate goes down. Either you run a tight, disciplined company, or you spend like a drunken sailor. There’s no acceptable level of waste. I feel the same about government earmarks.
I work in software. I got hired at a small, rising, local company that had just been bought by a large, declining networking company. They swore they had learned their lesson, and were anxious for new opportunities and markets. They negotiated a joint deal with a hardware manufacturer. We put together an incredibly aggressive schedule. Someone screwed up and gave the hardware company a date three months earlier, our managers backed them up, the other company had no commitments and made all the profit, we worked like dogs, delivered the best product possible in the time given, the project fell apart, and they cut us developers loose. They have been mismanaged for decades, and change everything but the managers.
Everything I’ve read from the AIG spokespeople tells me that they haven’t learned their lesson, either. They’ve been trying to explain all the spending and justify the bonuses. The first step to fixing things is recognizing and admiting the problem. They’ve lost a ton of money, and if their contracts lock them into wasting more, so be it. Until they realize they fucked up, nothing will change.
Good idea. At barrista/bike messenger wages. Forever. Time off if they bring in big cases.
Sophistication, awareness, knowledge. The victim makes a stupid and naive choice, he trusts the predator. The predator is neither stupid, nor naive. I am empathetic to the victim, I want to grasp the victimizer by the ankles and shake him upside down until every dime falls out. I don’t think the smart have any right to exploit the dumb, any more than the tall can exploit the short.
Well, I had kind of tried to back out of this thread but folks keep asking me stuff. And since I’m just sitting here in my hotel room twiddling my thumbs…
Well, a couple of things. First off, in retrospect, I don’t think bailing out AIG was a good idea…in fact, I don’t think ANY of the bail outs or stimulus stuff is or was a good idea. So, in light of that, I’d have to say that neither AIG nor your homeowner should be bailed out.
That said, the argument for why you WOULD bail out AIG and not the homeowner has to do with overall impact to the nation as a whole. While it might feel better to bail out your homeowner (and the millions of others like him), that’s all it would be…a feel good gesture. To be sure, if I was the homeowner in question I’d want this done and it would impact ME, personally, more. However, the theory was that if AIG went tits up we’d pretty much be packing it in, civilization wise, and relearning the joys of hunting and gathering. IOW, the impact of losing AIG (in theory) to society as a whole was enormous…and so, in the political and economic calculus that was where our money would be better spent as a society.
Well, I listed the reasons above…I think it’s an apples to oranges assessment. IMHO I think both are bad at this point…especially how the government actually went about DOING the bailout of AIG (and others…and the stimulus thus far). It’s been, IMHO a cluster fuck.
shrug If you are angry at AIG over the bonuses, or you think that this is all AIG/Lehman/Bear Stearn’s fault, etc etc, then you are angry over the wrong things IMHO…and your anger is focused on only one part of the collection of folks at fault. That’s just MHO, and I wasn’t really directing my comment about ignorance at YOU, specifically. Listening to folks talk about this however, there is a lot of ignorance on this subject…and yeah, a lot of the impression folks are getting and that is shaping their uninformed opinions on all this come from Obama (and Bush) and the Congress (both sides).
If you want to resent my assessment or if you want to disagree, well, that’s your right. It won’t bother me, and you won’t be in the minority in your views, especially around here.
Uhuh…well, believe what you like. And understand, I’m not saying that it’s just Obama and the Dems…the Pubs (and Bush) said similar things. To me, this is bread and circus all over again. The government is telling you what you want to hear and focusing on the little stupid shit like flying private planes to meetings with Congress and bonuses that were contractual obligations BEFORE the bailout was proposed…and are suddenly a big deal after the money has long been disbursed.
lol…and, you see, it doesn’t strike me as strange at all. And I don’t see this as a sign that the government is right on this issue that both parties that fucked up are pointing their fingers at the same place, or focusing on the little shit to distract the people from the BIG stuff. Sure, it’s a bit refreshing that they aren’t simply pointing fingers at each other…but it’s not surprising to me that they have focused on stuff like this. YMMV of course.
What rights? Who’s rights? Who’s rights are being infringed on with these bonuses, and why should we set aside legality in this instance?
-XT
Krugman was talking about the collapse of the housing bubble since at least 2007, so they should have known something about their risk. I have no idea if there was any fraud involved. I suspect the lawyers charged to find a way to get the bonuses back are exploring every avenue.
It is definitely for political reasons - if he said the execs deserved their bonuses, there would be no way in hell AIG would get any more money. As for the rest, yes it has been simmering for years, but the root cause has been the growing gap between the very rich and everyone else. This has been noticed. Right here many who posted about how great the economy was and why didn’t the masses appreciate it got reminded that the economy hasn’t been all that great for the masses. We’ve been told that the finance CEOs and execs deserved their money because they were smart and were building value. Now we find they were idiots and the value was a sham. The Republicans who tried to say any objection to this was class warfare have no credibility anymore. And now, to top it off, those who did it still think they deserve bonuses. I think this outrage is grass roots.
All true. But the majority of people don’t understand leverage well enough to get outraged by that. They don’t understand the lack of reserves, or the bad models. They know something was wrong, and they do know the people at least partially responsible for this mess don’t deserve millions of bucks. Thus the outrage. Whatever you think of popularism, if you don’t want it building you probably shouldn’t spit in the face of the people.
True…a lot of people saw it coming, though just like with the dot com bust I don’t know how many REALLY believed it was going to happen, or really understood what it would mean.
Sure…I understand where the outrage comes from. And sure, I understand what you are saying about your ‘root cause’…even if I’m a bit more cynical about it and think that this is part of the mantra song that’s been sung to the public to incite them to this outrage. This isn’t to say that it’s not justified in any way…but it’s all part of the same game from my own perspective.
That’s probably why a bunch of them have quit after they got their bonuses. They probably figured that 'luci and the gang were getting ready to storm over there with pitch forks and torches and a big vat of tar and feathers and a nice rail…
-XT
If they didn’t know it was because they didn’t want to know. Risk management is what an insurance company is all about, right? It’s not like the risks here were so obscure that reasonable people couldn’t have modeled them.
It reminds me very much of Bush saying that no one could have foreseen the impact of Katrina, or the clueless investors who said they couldn’t figure out that Madoff was a crook.
But I think you’re right about the greed. They knew that if they looked at the risk they’d have to pull back and not make so much money, so their greed made them blind to it. But that’s not an excuse.
Well, there’s that upside, the entertainment value of the Pubbies falling all over themselves trying to be at the cutting edge of populist rage.
“The Republican Party stands in people’s solidarity with the proletariat against the oppression of the running dog jackals of Wall Street!”
Preach it, brutha!
It’s almost as if the company had a split personality. I don’t think they ever tried to assess what the actual risks were on the non-insurance side. My guess is they made a calculation about that risk that factored in the government taking on part of that risk and that the house of cards could never collapse completely (i.e. there may be some percentage of failure, but it would ALL fail at once, and they would be covered).
More mystifying is the amount of leverage they used…THAT is truly a reason to get worked up about AIG, at least IMHO. I mean…WTF??
No, it’s not an excuse. They essentially fucked up by the numbers, and I’m all for them firing a huge swath of the management folks who made these incredibly bad decisions. But I’m all for THEM doing so…not being dictated by the government or The People™ to do so. Myself, I think that it would have been better to let them fail and take our collective medicine in one bad, foul tasting spoonful. As it is, I see the pain being spread out over literally years at this point…and in the final analysis I don’t know that AIG (or any other company) has actually learned any lessons from this (oh, they won’t make THIS mistake again, to be sure). Since I believe in the market, I see this as a huge distortion…which means the right info is not going to be generated here, and real corrections aren’t going to happen. If future AIG’s know that the government will step in with funds if they fuck up badly…well, what’s going to prevent them from fucking up badly?
-XT
I’d feel better about it if we could be sure that none of the bonuses go to people who work in commodity derivatives and commodity indices. They don’t produce anything valuable for society except making rich people richer. I know there are flaws to my logic, in fact it’s not even a logical position, it’s just sentiment. Greedmongers get paid out for being too greedy = sickening.